Who Needs Professional Liability Insurance and Why

Who Needs Professional Liability Insurance and Why

Jane Meggitt
 | 
If you earn your living by providing your expertise, you are subject to any unique risks of your profession. That is why you should consider purchasing professional liability insurance (PLI). Some professionals, such as doctors and lawyers, are required to carry malpractice insurance under state law. There is no such mandate for small business owners,  but buying such coverage is a wise idea.

No matter how ethically you run your practice or company, you never know when a customer may file a lawsuit, alleging some issue with your services. Doctors are well aware of the possibility of medical malpractice claims, but many small business owners are less informed about their lawsuit vulnerabilities. PLI will pay for legal representation should you find yourself facing a professional lawsuit, as well as any damages up to the coverage limit.

Professional Liability Insurance
Also known as error and omissions insurance, PLI provides protection for you and your company if mistakes are made and a client sues. For instance, failing to file a required form on time can adversely affect a client financially. No matter how smoothly a business runs, an occasional hiccup can spell disaster. The matter may not even be your fault, but a client can still file a lawsuit.

Some insurance carriers offer a type of coverage known as management and professional liability insurance. Such a policy also covers allegations made by employees against the company.

What PLI Covers
  • Core PLI policies should cover:
  •        Breach of contract
  •        Budget overruns
  •       Copyright infringement
  •       Inadequate work
  •        Misrepresentation
  •        Missed deadlines
  •        Negligence
  •        Non-delivery of services
  •        Work errors
PLI does not cover defense costs for criminal prosecution. Nor does it cover disputed fees, punitive damages, illegal profits or situations resulting from failure to maintain insurance. Each policy will specifically outline the forms of legal liability covered.

Who Should Carry PLI?
Anyone providing professional services should consider a PLI policy. Examples of such service professions include:
  •        Accountants
  •        Appraisers
  •        Consultants
  •        Engineers
  •        Insurance professionals
  •        Land surveyors
  •        Realtors and brokers
  •        Software developers
These professionals must meet their industry’s standards of care. In plain terms, that means the company offering these services is supposed to assist and enhance a client’s business, not harm it. If a client believes they were harmed by the professional’s actions, they may file a lawsuit for professional negligence.

General Business Insurance vs. PLI
General business owner policies do not have a PLI component. That is also true of homeowner’s policies if you conduct business out of your residence. While both of these types of policies address general liability – such as when someone falls and injures themselves on your property –there is no liability protection from business or professional claims.
A lawsuit filed against a professional involves financial loss. For example, a client may allege the professional’s poor advice or software error resulted in their company taking a financial hit. One such lawsuit can devastate a small business, which is why PLI is critical.

Core and Separate Policies
You will need a core PLI policy, along with separate policies addressing likely scenarios in your line of work. Your insurance broker or an attorney will help you determine the best PLI coverage for your needs.

In some cases, it is possible to make your PLI policy retroactive, so it will cover issues from a date stated in the policy. That is especially useful for professionals such as architects or engineers, as material defects in a project can take some time to appear.

It is imperative that you understand exactly what your policy covers. A lawyer should review your coverage prior to purchase to ensure the policy is worded tightly to your advantage. Seek an attorney familiar with your profession or business to ensure that you receive all pertinent protection.

 
This article is intended to convey generally useful information only and does not constitute legal advice. Any opinions expressed are solely those of the author, not LawChamps.
 
Jane Meggitt

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